Hong Kong Exchanges and Clearing (HKG:388) Is Paying Out Less In Dividends Than Last Year

The board of Hong Kong Exchanges and Clearing Limited (HKG:388) has announced it will be reducing its dividend by 26% from last year's payment of HK$4.69 on the 14th of September, with shareholders receiving HK$3.45. Based on this payment, the dividend yield will be 2.7%, which is lower than the average for the industry.

See our latest analysis for Hong Kong Exchanges and Clearing

Hong Kong Exchanges and Clearing's Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 46.4%. If the dividend continues along recent trends, we estimate the payout ratio will be 68%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of HK$4.25 in 2012 to the most recent total annual payment of HK$8.87. This means that it has been growing its distributions at 7.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Hong Kong Exchanges and Clearing might have put its house in order since then, but we remain cautious.

Hong Kong Exchanges and Clearing's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. We are encouraged to see that Hong Kong Exchanges and Clearing has grown earnings per share at 11% per year over the past five years. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 28 Hong Kong Exchanges and Clearing analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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